PSA Group To Cut More Production Jobs

A few weeks ago I wrote an update regarding the purchase of Vauxhall/Opel by the PSA Group who own Peugeot and Citroen. In that article I described how a large carrot was dangled in front of the PSA CEO to get the new acquisition back in profit far quicker than he had done so at the parent company: two years instead of four. To get PSA profitable Carlos Tavares, the CEO, had cut nearly 25% of the workforce which equates to around 28,000 workers. Clearly, the quick way to save costs at Vauxhall/Opel is to do the same thing.

After the acquisition was announced, PSA cut 400 jobs at the Ellesmere Port factory that assembles Vauxhalls in the UK. In January they announced another 250 jobs would go, dropping the plant to a single shift assembling one model: the Astra hatchback. What was funny was the comment that PSA wanted the factory to “build their industrial footprint” within the PSA Group. It’s a strange way to do it – by cutting their ability to make the core product!

PSA also announced that they wanted another 1,300 jobs to go at their own factories in France. PSA have used a new law brought in by the current Government to facilitate the cuts. Basically, they will lose 1,300 high paid workers to bring in 1,300 cheaper workers and a further 2,000 interns. The company suggests that it is a happy balance – I would suggest that it isn’t as the skilled workers leave and the interns get paid a pittance to do the same job and probably slower as they need to skill up. As you can imagine, the main workers union at the factory is less than impressed.

In April, PSA demanded a further 3,700 jobs must go at the German Opel factories before 2020 – just when Tavares is expected to get his big payout. Apparently 2,000 German workers have already taken voluntary redundancy or have been “bought out”, a euphemism for being laid off. Opel’s Workers Council is concerned that after all these humans have left the factory, there will not be enough left to meet production targets. The head of the Council has stated that there is no strategy or clear vision for the marque.

Earlier this month they suspended the Opel “buy outs” to concentrate on the voluntary redundancies which are presumably much cheaper to do. Reuters reported that the main departures so far have been senior management and “key engineers” and the beneficiaries are the competing local manufacturers and some parts suppliers. When Reuters asked PSA for a comment, they were deflected to Opel!

As you could imagine, the talk of job losses in France and Germany has been met with concern by the German Chancellor with the French and German unions arguing about the level of effort put in to save the workers. In the meantime, the unions across Europe are trying to negotiate a new pay deal with PSA – who promptly cancelled plans to build an SUV at the old Eisenach factory and suggested that wages at the Opel factories should be lowered! The PSA Group have also announced that every one of the 1,600 Opel dealers across Europe have been given a two-year termination notice. Expectations are that only about 1,000 will be offered new contracts.

I appreciate the fiduciary commitments that senior management and board directors have with respect to an organisation and the shareholders, however, offering a large carrot to the executive team will inevitably influence their decisions to the detriment of workers lower down the structure. It is too easy to manipulate the figures to collect the dollars on offer without consideration of the long term viability of the business.

In some respects I don’t understand why PSA bought General Motors Europe. Vauxhall and Opel were making losses and they had around 6.5% of the market prior to the acquisition. The combined group had 15.4% by August last year, still a long way behind a damaged VW Group, and they were never going to beat them with this purchase. So buying the two marques hasn’t pushed the group much higher in the rankings however there is a greater risk that the acquired brands could bring down the whole group. After the acquisition, there was no guarantee that buyers would still want a Vauxhall or Opel vehicle, so why do it?

At the current rate, many of the acquired workers are going to lose their jobs and the factories closed down. This leads me to the question: why didn’t they let GM Europe fail, whilst putting more effort into selling their own products? Surely that would have been cheaper.